The dollar index firmed up around 103.5 on Wednesday, holding just below a 20-year high ahead of an expected interest rate hike from the Federal Reserve, with traders watching for an even more hawkish tone than many expect from the central bank. The Fed is widely expected to hike rates by a hefty 50 basis points and announce plans to reduce its $9 trillion balance sheet when it concludes its two-day meeting later today.
Comments by Fed Chair Jerome Powell after the meeting will also be scrutinized for any new indications on whether the Fed will continue to hike rates to battle rising price pressures even if the economy weakens. Meanwhile, weaker-than-expected quarterly US growth data last week proved little obstacle to the dollar’s rise, and investors hardly adjusted their near-term interest rate bets. Fears of an economic slowdown in Europe and China also drove safe haven flows into the dollar.